2021 (6) TMI 1083 - HC - GST

Levy of service tax - royalty/seigniorage charges since royalty on mining leases - definition of supply as per entry No.17 of Notification No.11/2017-Central Tax (rate) dated 28.06.2017 read with Entry No.5 of Notification No.13/2017-Central Tax (rate) dated 28.06.2017 - HELD THAT - Although the matter relates to challenge to a show-cause notice and in very rare cases this Court would interfere at the initial stage, we are of the opinion as the very incidence of tax on royalty/seigniorage charges is in question, we are inclined to entertain the writ petition. Post on 09.08.2021.

Summary

Issues involved:
Jurisdiction to impose tax under reverse charge mechanism on royalty/seigniorage charges; Definition of supply as per specific notifications; Stay on imposition of service tax on royalty on mining leases by the Hon'ble Apex Court; Entitlement to raise all issues before the assessing authority; Interference by the Court at the initial stage due to the incidence of tax on royalty/seigniorage charges being in question.

Analysis:

The petitioner's counsel argues that the authority lacks jurisdiction to levy tax under the reverse charge mechanism on royalty/seigniorage charges, contending that royalty on mining leases does not fall under the supply definition as per specific notifications. Citing precedents, it is claimed that seigniorage paid on a mining lease has been considered a tax, precluding further taxation. Additionally, the imposition of service tax on royalty from mining leases is reportedly stayed by the Hon'ble Apex Court, further supporting the petitioner's stance.

The Government Pleader for Revenue asserts that only a show-cause notice has been issued regarding tax liability under the GST regime for services provided to the petitioner by the State for mineral extraction under the reverse charge mechanism. Consequently, the petitioner is deemed entitled to raise all pertinent issues before the assessing authority.

While acknowledging that the matter primarily challenges a show-cause notice, the Court expresses willingness to entertain the writ petition due to the fundamental issue of tax incidence on royalty/seigniorage charges being in dispute. This decision deviates from the norm of minimal interference at the initial stage, indicating the significance of the matter at hand.

The Court directs the filing of counters and adjourns the proceedings to a later date. Notably, it orders the suspension of the contested show-cause notice until the next hearing scheduled for 09.08.2021, thereby providing temporary relief to the petitioner pending further legal deliberations.